This is the Chapter that will be used
https://www.theguardian.com/business/2002/jun/27/corporatefraud.worldcomLinks to an external site.
https://www.nytimes.com/2002/08/08/business/for-worldcom-acquisitions-were-behind-its-rise-and-fall.htmLinks to an external site.
Week 13: Discussion
answers to the following questions
- Give suggestions on how the fraud at WorldCom could have been prevented? Think about what people at the company did, the company culture, and any roles others played in the fraud.
- Which one person do you think is most responsible for the fraud being uncovered?
- Please explain your reasoning.
- Six WorldCom employees were convicted in the case.
- Which of these do you believe is the most responsible for the fraud? Why?
8. The audit form of Arthur Andersen claimed they followed Generally Accepted Auditing Standards and were misled by WorldCom executives, yet they settled the investor lawsuits and two partners were sanctioned.
- What audit test Links to an external site. do you believe Andersen could have performed to detect the fraud?
- Why did you choose those tests (use examples from the case)?
Angela XavierThis week we are looking at the WorldCom accounting fraud. This is another case of aggressive and unsustainable growth policies where new acquisitions were not fully integrated, which created sloppy, disjointed operations, and decreased the effectiveness and profitability of the company. The accounting schemes revolved around earnings management that included “big bath” overstatements of expenses in one year in order to decrease expenses in subsequent years. They were also using cookie jar reserves. They also recorded line costs paid to other carriers for use of their telephone lines as “prepaid capacity,” thereby creating assets on the balance sheet. In reality, these costs should have been expensed on the income statement as normal operating costs as incurred.This happened about the same time as Enron became public. WorldCom management, like Enron management, were held criminally liable for the fraud. Ebbers and other WoldCom managers were sentenced to long prison terms. I really admire the internal auditor in this case, Cynthia Cooper. She had the moral courage and backbone to stand up to intimidation from Sullivan and Ebbers and do what was right. Unlike Deidra DenDanto at Sunbeam who lacked the courage to follow through and blow the whistle on the fraud, Cynthia Cooper blew the lid off the corruption. Cooper wrote a book that I want to read over winter break. Another thing that is interesting is that Ebbers was very much in debt in his personal life. He was buying lots of real estate that he couldn’t afford and was taking on major personal debt to finance his lifestyle. As wealthy as he was, he was living above his means. That is a major red flag for a person who would be more inclined to commit occupational fraud. Ebbers should not have had the power that he did within the organization, but there were no internal controls at WorldCom.–Angela XavierTaisa IotkoHi, everyone!This week we read about the next corporation “WorldCom” which decided to choose the fraudulent way in order to mislead their investors and creditors about the real situation in the company. Again, we read about some fraudulent accounting manipulating scheme such as “cookie jar”, and “big bath”. We also see Arthur Andersen here again. In this time he was covered the fraud for the WorldCom. I was also glad to read about another category of workers (accountants) who were not afraid and had courage to fight the fraudulence in the corporation. It was four people who helped to detect the fraud: Kim Emigh, WorldCom Financial Analyst; Mark Abide, WorldCom Director of Property Accounting; Glyn Smith, WorldCom Director of Internal Audit; Cynthia Cooper, WorldCom Vice President of Internal Audit. They are an example of people who follow the ethics standards and law. Such people motivate to do the right things, to be brave, and to follow the path of good conscience. Taisa I.